India will spend nearly Rs 143 lakh crore on infrastructure in seven fiscals through 2030, more than twice the ~Rs 67 lakh crore spent in the previous seven starting fiscal 2017, CRISIL said during its flagship India Infrastructure Conclave 2023 held in New Delhi today.

Of the total, ~Rs 36.6 lakh crore will be green investments, marking a 5x rise compared with fiscals 2017-2023.

Says Amish Mehta, Managing Director & CEO, CRISIL Ltd, “CRISIL expects India’s gross domestic product to grow at an average 6.7% through fiscal 2031 to be the fastest-expanding large economy. Per capita income is seen rising from ~$2,500 now to ~$4,500 by fiscal 2031, creating a middle-income country. This growth will be underpinned by massive all-round infrastructure development, with sharp focus on integrating sustainability.”

The annual conclave serves as a thought-leadership platform to stimulate discussion and yield ideas, actions and reforms to drive India’s infrastructure build-out. The theme this time was ‘Building and financing sustainable infrastructure’, with focus on funding and capacity-building in sustainable solutions in the energy, transportation and urban sectors.

Shri Nitin Gadkari, Union Minister for Road Transport and Highways, Government of India, was the keynote speaker at the conclave and launched the CRISIL Infrastructure Yearbook 2023 in the presence of a galaxy of policymakers, industry leaders, representatives of funding agencies and other stakeholders.

The yearbook includes a unique national index, the CRISIL InfraInvex, which has been measuring the investability or ‘investment attractiveness’ of select infrastructure sectors since 2017. This year, CRISIL has incorporated environmental sustainability in the index framework to reflect its increasing importance in investment decisions.

“Policy interventions and a conducive investment climate have aided the uptrend in the CRISIL InfraInvex scores across sectors. Four of these - roads and highways, power transmission, renewable energy and ports - have an overall score of 7+ (out of 10), which underscores the pace of reforms and developments of the past few years,” said Amish Mehta. “Here, the role of stakeholders cannot be overstated, and we need consistent policies, timely regulatory interventions and relentless execution. These are crucial to keep India’s infrastructure investment thesis compelling over the long term and draw in patient capital.”

The next phase of infrastructure development will be marked by growth in the average ticket size of projects and a significant number of mega-scale projects. Appropriate and consistent policy and regulatory interventions and focus on timely execution build an attractive case for various stakeholders to accelerate investments across infrastructure sectors.

The yearbook provides an assessment of infrastructure funding requirements, interventions required in addressing the funding related challenges, avenues to promote green financing, with specific details of how electric vehicles (EVs), renewable energy, battery storage, and hydrogen are going to shape the future of sustainable infrastructure development.

Prominent sectors such as roads and power are expected to remain major contributors, while relatively nascent ones such as EVs, solar, wind, and hydrogen will pick up pace.

The share of EVs in India’s overall automobile sales is likely to reach ~30% by 2030. Two-wheeler EV sales are expected to outpace other segments up to 2028, while demand for EV buses will be driven by state transport undertakings. Favourable total cost of ownership and total cost of acquisition, as well as model availability for two- and three-wheelers will support EV offtake in coming years.

The share of renewable energy in total capacity is estimated to grow 4x between fiscals 2023 and 2030. Solar will account for half of the incremental non-fossil generation. There is a growing need to leverage emerging technologies such as ‘floatovoltaics’ (floating solar), offshore wind technology and green hydrogen.

The hydrogen sector is poised to attract substantial investments, estimated at ~Rs 1.5 lakh crore between fiscals 2024 and 2030, driven by government incentive schemes. Mandates for green hydrogen use and incentive schemes will be important here considering the cost of production of green hydrogen is twice that of fossil-based hydrogen.

CRISIL InfraInvex also highlights the areas in each sector that need attention and the possible solutions.

The massive funding need, for one, can be met through accelerated bond market activity, greater foreign investment interest and robust equity markets.

Thankfully, banks and NBFCs are in a comfortable position to further lend to the infrastructure sector following improvement in balance sheet and greater focus of sector NBFCs.

In CRISIL’s view, India’s first sovereign green bond issuance will pave the way for the development of the domestic bond market for green issuances. Over the past few years, global experience has shown increasing appetite for green assets among investors, leading to Indian companies seeking funds in global markets.

The pace of monetisation will have to accelerate. Continued evolution of asset monetisation models can ensure timely flow of funds and provide exits to existing investors. The government has ensured our policies respond to the needs of sectors with evolving challenges of size and changing technological landscape and business models, especially in EVs, hydrogen, and renewable energy. It is critical to have continued support for scaling up sustainable urban infrastructure, mobility solutions and emerging technologies.

Regulatory evolution and clarity in areas such as carbon market development, grid integration of renewable energy, Production Linked Incentive scheme for the EV value chain and energy storage will ensure we build further on the momentum already generated in these segments. Balancing growth and environment concerns, ensuring a smooth and just transition from fossil fuels, will be important, too.

Under the wider theme, three discussion panels were conducted, on building green urban infrastructure, on sustainable mobility and transportation, and on identification of avenues for green capital for financing these investments.